Fundrise Review – Do Automated Investing And Real Estate Mix?

About Fundrise

Fundrise is an automated investment platform that allows everyday investors to put money into the residential and commercial real estate markets. Fundrise was founded in 2010 by Dan and Ben Miller and now has over $300 million in assets under management. In addition, Fundrise investments make up a portion of more than $3 billion in total real estate properties.

Fundrise stands out from most other automated investment services in that it only offers real estate in its portfolios. The platform offers excellent historical performance and can make a good addition to traditional stock market investments. Is this the right real estate investing platform for you? Continue reading our Fundrise review to find out.

Fundrise Investments

Fundrise is different than most other automated investment platforms. Instead of putting your money into stocks or ETFs, Fundrise invests your money directly in portfolios of multiple properties or real estate projects.

Fundrise has two different types of investments available: eFunds and eREITs.

eFunds are managed portfolios of residential properties and developments, such as single- and multi-family residences, townhomes, and condominiums. These are structured as partnerships rather than corporations, so they are not publicly traded.

eREITs are like the traditional REITs available through other automated investment services, but with the important difference that Fundrise eREITs are not publicly traded. eREITs are professionally managed portfolios of commercial properties, including apartment complexes, shopping centers, and office buildings.

With both types of investments, you make money in multiple ways. Interest payments and payments on the properties in which you are investor provide returns in the form of dividends, while appreciation of the value of the properties can increase the value of your original investment over time.

Fundrise Plans

Fundrise currently offers four plans for investors. Most people will start out with the Starter plan, which requires just a $500 minimum investment and comes with a 90-day trial period in which you can receive your entire investment back from Fundrise. With the Starter plan, Fundrise automatically invests 25% of your account in the platform’s Income eFund, Income eREIT, Growth eFund, and Growth eREIT to provide balance.

If you have more than $1,000 invested with Fundrise, you are eligible to upgrade to a Core plan for free. The three Core Fundrise plans, Supplemental Income, Balanced Investing, and Long-term Growth, provide more customization of how your investment is allocated. Supplemental Income focuses on providing quarterly dividends, while Long-term Growth invests your money in projects that are expected to appreciate in value over time. The Balanced Investing plan provides a middle ground between the two.

With each of these Core plans, Fundrise is essentially investing your money in a different balance of eREITs and eFunds. Importantly, Fundrise provides an impressive degree of transparency. You can not only see the eREITs and eFunds, but actually view a list of every project that each Core plan is currently invested in through those portfolios, Fundrise’s risk rating for that holding, and its projected return.

At this time, Fundrise does not allow investors to customize the portfolios of any given Core plan. The platform’s tools to help you get started primarily ask questions about your investment goals so that you can choose the plan that is most suitable for you.

Fundrise Account Requirements

Fundrise is only available to residents of the US. You must have a $500 minimum investment to invest in the Starter plan, or a $1,000 minimum investment to invest in one of the Core plans. If you add money to your investments after your initial investment, you must add at least $100 at a time.

Pricing and Fees

Fundrise charges 1% in annual fees, which is significantly higher than the 0.25% fees leveraged by most automated investing platforms focused on stocks and traditional REITs. However, 1% is extremely competitive compared to traditional routes for investing directly in real estate projects, and particularly REITs that are not publicly traded like Fundrise’s eREITs.

In addition, note that Fundrise charges a variable 0-2% fee up-front when investing in eREITs and eFunds. The exact percentage depends on the real estate properties contained within each portfolio.

While there are no brokerage or commission fees, Fundrise does charge a $125 annual fee if you would like to invest through an IRA rather than a traditional or joint investing account.

Importantly, there is a lot of behind-the-scenes action in real estate investing and development that can cost you money. Fundrise is not clear on the fees that go into development, which can be up to 5% on your investment if Fundrise develops a project itself rather than relying on a partner. There may also be load costs in moving money into Fundrise’s portfolios, depending on how the platform prices its assets (this is not clear from Fundrise’s website, but appears to be leveraged when opening an account).

Getting Your Money Out of Fundrise

The most important thing every investor should know about Fundrise is that you can’t simply pull all your money out of the platform at one time. Investing with Fundrise should be considered a long-term investment, since you are penalized for withdrawing money within five years of your investment. In addition, payouts may be delayed depending on Fundrise’s cash flow at the time you request a withdrawal.

The penalty for withdrawing investments depends on how long you have been invested with Fundrise. No penalty is assessed if you withdraw within 90 days, but that jumps to 3% between 90 days and three years. Between three and four years, the penalty is 2%, and between four and five years it is 1%. Importantly, Fundrise retains the right to suspend this redemption plan (essentially locking up your money for a minimum of five years) at any time.

Fundrise Platform and Tools

The Fundrise platform is essentially just a dashboard, since there is very little control that you have over your investments once you select a plan. The main Fundrise platform shows a summary of your investment returns and notifies you of quarterly dividends, while additional screens allow you to explore your portfolio holdings and fees.

The one tool that Fundrise does offer investors is automatic dividend reinvestment. When you automatically reinvest dividends with Fundrise, the platform will balance the investments across all of your holdings and will not levy an up-front fee. Investors have the option to turn off automatic reinvestment at any time, allowing you to collect dividends as withdrawable cash each quarter.

Historical Performance

Fundrise advertises a 10.8% average annual return after fees over the past five years, with a minimum annual return over that period of 8.8%. That’s extremely impressive compared to the S&P 500, which averaged 7.7% per year and has been much more variable in performance. The dividend yield is also impressive – Fundrise produces 5.2% dividend yields on average compared to just 3.1% for the Vanguard Real Estate ETF.

That said, Fundrise was founded after the 2008 housing crisis and has operated during a period when housing prices have exploded. It is not clear how the platform’s investments will fare during an economic downturn, or how they will recover after such a downturn.

Key Differentiators

Fundrise differentiates itself from other automated investing platforms by focusing exclusively on real estate. Moreover, Fundrise doesn’t offer access to the publicly traded REITs that can be found on other investment platforms – it has created its own eREITs and eFunds for investing directly in portfolios of both commercial and residential real estate. This allows investors to put money in real estate and development projects that are typically not accessible to the public.

Fundrise has seen incredible success in its early years of operation, with sky-high returns of more than 10%. The availability of high-dividend plans is also attractive to investors looking for steady income, which is something that automated investment platforms like Betterment and Wealthfront don’t provide. However, it’s also important to keep in mind that Fundrise investments have not yet experienced a period of economic recession, and it is unclear how Fundrise investors will perform during such a period compared to investors in the stock market or who have a more diversified portfolio.

Finally, Fundrise is very different from almost every other investment platform available to the everyday investor in that your money is illiquid after it is invested. Investors are penalized for withdrawing money within five years, and withdrawals could be delayed even after that five-year period.

Trustworthiness

Fundrise has been generally lauded by its investors and appears to be worthy of trust. The platform provides excellent transparency when it comes to investments, although it’s worth being skeptical about what fees are not being disclosed during the project development and investment process. Unlike for most stock-focused automated investing platforms, Fundrise investments are not SIPC-backed.

Who is Fundrise Best For?

Fundrise is best for investors who want to take advantage of the high returns available by investing in real estate. Fundrise offers a way to invest much more directly in both residential and commercial real estate projects than most other automated investment platforms, and it costs far less than the traditional routes available for investing in real estate development.

That said, real estate is an inherently risky investment and investors in Fundrise do not have a lot of control over how much risk they are investing in. Fundrise investments have also not been tested during an economic downturn. So, Fundrise investors must be willing to accept potentially more risk than most ETFs inherently involve.

In addition, it’s worth keeping in mind that Fundrise is only suitable for long-term investments. You should have a minimum investment horizon of five years, and ideally longer in case payouts are delayed for any reason.

Pros

• Low-cost access to residential and commercial real-estate investing
• Excellent transparency in what properties your money is invested in
• Investment plans available for high dividend returns and long-term value returns
• Extraordinary historical performance that outpaces the S&P 500
• 90-day withdrawal period with no penalties

Cons

• Penalties for withdrawing money within five years of original investment
• Potential for lots of hidden fees
• Little control over the amount of risk your investments are taking on